Taxation
Inheritance Tax (IHT)
Inheritance Tax (IHT) is a tax on the estate (the property, money and possessions) of someone who has died. The standard IHT rate is currently 40%. It is only applied to the part of your estate that is above the IHT threshold.
The threshold can change each tax year, which runs from 6 April to 5 April of the following year.
You can view the current IHT threshold online on GOV.UK.
Paying IHT on your compensation
If you are an infected or affected person, an IHT credit will be applied to the money you receive from the Infected Blood Compensation Scheme. This applies whether you choose the adjusted or core compensation route. The IHT credit is the same value as your interim payments (up to £310,000), the core lump sum, and any support payments received after 1 April 2025. The IHT credit will be applied to your estate and no IHT will be due on your compensation payments.
The IHT credit will also apply to any transfer that has already been made by an infected or affected person. These payments must be recorded in writing and signed by the infected or affected person, even if the gift has already been made.
The IHT credit applies to the first transfer of your estate only. IHT may be due on any transfers after this.
If an infected or affected person dies before compensation is paid, the IHT credit will be applied to the first living recipient of the payment.
The IHT credit applies to your compensation payment only and not any interest, gains or profit made from investing the money.
If you do not want to accept the compensation
If you receive a deceased infected or affected person’s compensation payment but do not want to accept all or part of the money, you can redirect it to another person or people. If the compensation was received before 4 December 2025, the first living recipient will have 2 years from 4 December 2025 to redirect the compensation payment.
If the compensation payment was made after 4 December 2025 the first living recipient will have 2 years from the date of payment to redirect the compensation payment.
If you choose to redirect the payment, the IHT credit will be applied to the person or people the money was redirected to.
You can view guidance about changing a will after a death online on GOV.UK.
A financial adviser can also help you redirect the compensation payment. See Financial advice for more information.
Providing proof of compensation to receive the IHT credit
You do not need to tell HMRC about your compensation payments or complete a Self Assessment tax return.
You do not have to pay income tax or capital gains tax on compensation payments, and compensation payments qualify for IHT relief.
You do not have to show that the compensation is included within your estate for the IHT credit to apply, but you do need to show the compensation was received, and the amount paid.
For example, if you use the compensation money to buy a property and the money is no longer identifiable within your estate, the IHT credit will still apply to your overall estate.
You must provide a copy of the compensation letter and the will to the executor of the estate to make sure the IHT credit is applied.
The IHT credit applies regardless of where the money is held, even if it is divided across different bank accounts or held in joint names.
Paying tax on any profit or gains if you invest your compensation
You will not pay any tax on your compensation payment.
If you decide to keep your payment in a savings account, you may have to pay tax on any interest you earn above the annual tax allowance.
If you invest your payment in stocks and shares, you may have to pay tax on any gains you make above the annual tax allowance.
If you use your payment to purchase property, you may have to pay tax on any profit you make.
You can view the current tax allowances online on GOV.UK.
Any interest, gains, profit or investment income should be declared in tax returns and self-assessments.
If you live overseas
If you are based overseas, IHT rules can be complex. To find out if you might owe IHT you should check with a qualified tax professional who is familiar with both the tax laws of the UK, and the country you live in.
Compensation payments can be paid into international accounts and will be paid in GBP only.
Compensation payments will be paid via the Government Banking Service (GBS). You will need to cover the foreign exchange (FX) rate and any fees due from your bank.
Trusts
Trusts and how they are taxed can be complex. If there is a trust involved in your estate, or you would like to explore trusts, you should get specialist advice. You can find a solicitor online.
You may find it reassuring to choose a solicitor that is a member of the Society of Trust and Estate Practitioners or the Association of Lifetime Lawyers.
Future updates
There may be future updates regarding the tax treatment of compensation payments. Check the IBCA website for updates.